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Is Textual Tone Informative or Inflated for Firm’s Future Value? Evidence from Chinese Listed Firms

Dong Xiao Wu, Xiao Yao and Jian Luan Guo

Economic Modelling, 2021, vol. 94, issue C, 513-525

Abstract: Using a sample of listed firms from 2012 to 2017 in the A-share markets of Shanghai Stock Exchange, we examine how textual tone influences a firm’s future value based on a total of 4694 annual reports. We find that the tone of the Management Discussion and Analysis (MD&A) sends a signal of managers’ expectations of the firm and generates a long-term effect on market responses. We show that firms with more optimistic MD&A tone tend to present higher firm value. We further discover that such impact is weakened for the firms with higher-paid executives and more independent directors. Our empirical results are robust to a battery of checks.

Keywords: Textual analysis; Tone manipulation; Firm value; Corporate governance (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.econmod.2020.02.027

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